Trump threatens nascent recovery at Aberdeen

Aberdeen Asset Management CEO, Martin Gilbert

Revenues fell 14% to almost exactly £1 billion for the year ended September 30, the company said in its results statement on November 28. This was primarily due to lower management fees, as investors pulled cash from Aberdeen’s chiefly emerging markets focused funds during the 12 months.

The firm suffered £13.6 billion’s worth of outflows from its equities funds, though this was less than 2015’s £16.4 billion. In a statement, chairman Simon Troughton wrote that “much of the improvement [was] in the second half year. Emerging market equities recorded a small net inflow of £600 million for the final quarter, albeit negative for the year overall.”

Aberdeen also recorded outflows in emerging market debt, a newer specialism, and from its UK property franchise following the Brexit vote in June.

Aberdeen had net outflows from all its business lines during the 12 months – but these were offset by market gains, and currency moves, meaning the firm’s assets under management rose overall, from £283.7 billion to £312.1 billion.

On a journalists’ call this morning, Gilbert said the outlook was difficult. He said that said that during the third quarter of the year, sentiment and flows in emerging markets had begun to recover, but “just when you think everything is going well, we saw the result of the US election”.

He went on: “While the world generally thinks this is positive for global growth, there is a theory that President-elect Trump might be protectionist, and therefore it could be bad for emerging markets. We have seen a bit of a change in sentiment, but let’s wait and see.”

He described flows into Aberdeen’s emerging markets funds since the US election as “soft” and said: “I get the feeling it’s stopped the inflows. There has been a change in asset-allocation by some of our clients, such as the private banks, who were positive on emerging markets and are now neutral.”

Some analysts were willing to look through the bad news this morning. Rae Maile, an analyst at Cenkos Securities, put out a note upgrading the firm to a “buy”. Maile wrote: “A year ago we warned that Aberdeen would face a tough year and it has done so, but it has faced those difficult conditions with considerable resilience and, importantly, shareholders have seen a maintained dividend … the balance sheet remains strong and the business cash generative.”

Aberdeen’s shares rose this morning in early trading, up 3.1% to 295p as of 09:54 GMT.

Gilbert confirmed that Aberdeen has decided not to bid for Pioneer Investments, the fund manager owned by Italian bank UniCredit. Gilbert had been interested in the firm thanks to its presence in the US, but he said “maybe we could have done it, but the feeling was it was a bit of a stretch for a company our size”.

He said Aberdeen continued to be interested in doing deals, particularly ones that would help build distribution in the US. He praised peer Andrew Formica, of Henderson Global Investors, for that firm’s recent tie-up with US manager Janus Capital.

He said: “Andrew has done a really good job getting that deal done. It’s a very smart deal as far as the industry is going. A domestic player merges with an international player, and theoretically both should win. We would love to do something like this.”

Aberdeen warned of tough times ahead for the asset management sector, and said it was £30 million through a planned £70 million programme of cost-cutting. Gilbert said: “The industry is going through a long hard look at costs. We were probably three years ahead; we went into outflow because of the emerging market problems. The rest of the industry is following us in.”

He blamed tighter regulation – Aberdeen was asked to put aside an extra £140 million in risk capital by the UK market regulator in September – and the rise of passive investing, which he predicted would take hold in Europe as it has in the US market.

Aberdeen backs the key proposal to emerge from the Financial Conduct Authority’s ongoing review of the asset management market – the “all in fee” – but is still working on what it would mean in detail, Gilbert said.

UPDATE: This story was updated at 10.30 GMT on November 28, 2016 will extra quotes from Martin Gilbert

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